Bill suggests wholesale pricing to fight drug shortages

Paper-thin margins on some generic sterile injectable drugs are often cited as one of the big reasons that so many have ended up in short supply, because few companies, if any, want to make them. When a plant is closed for upgrades or a supplier decides to drop a drug because the reward is too low, then presto--the drug is in short supply and patients who rely on it are in a world of hurt.

Congressmen Bill Cassidy, a doctor from Louisiana, and four colleagues have introduced a bill that they say could make it worth the while of drugmakers to manufacture these drugs and even draw some branded makers back into the market with tax incentives. It has the support of at least one cancer advocacy group--the Community Oncology Alliance--as well as drug wholesaler AmerisourceBergen ($ABC).

The bill would affect generic injectable drugs for which there are three or fewer producers, exempting them from the current pricing method of average sales price plus 6%, which they claim works for branded drugs but not cheap generics.

The proposal relies on returning to wholesale pricing for these kinds of drugs, similar to the reimbursement system that led to a series of lawsuits against drugmakers and wholesalers for gaming the system for profit. That won't happen this time around, the congressmen claim, because prices will be based on wholesale acquisition cost (WAC), a price set by wholesalers, which the group claims is a real market price, and so resistant to being manipulated. They also would exempt the drugs from Medicaid and Medicare discounts and rebates that also lower their prices. And if the drugs are in short supply, any branded drugmaker returning to the market wouldn't have to pony up the Patient Protection and Affordable Care Act annual fee, in hopes of drawing them back into the market.

The bill's supporters acknowledge that changes the FDA has made, as well as provisions in a new FDA funding bill, are helping curb shortages. But they say more is needed. Still, when pricing is involved, it gets tricky. Drugmakers and wholesalers have paid out hundreds of millions of dollars to settle lawsuits that accused them of leaving out discounts when they reported drug prices to the wholesale source the government used to set prices. This, lawsuits said, artificially raised prices for government reimbursements. The Generic Pharmaceutical Association (GPhA) even sought the blessing of the Federal Trade Commission on a plan it created to share some production information to help fight drug shortages, which the FTC granted in August.